Magic Number

Date created: Jul 28, 2020  •   Last updated: Sep 1, 2020

What is Magic Number?

The Magic Number is a ratio showing yearly recurring revenue growth gained for every sales and marketing dollar spent. It indicates the level of operational efficiency of a company, as well as the sustainability of sales and marketing expenditure.

Alternate names: Sales Efficiency


ƒ ((current quarter’s recurring revenue – previous quarter’s recurring revenue) x 4) / (previous quarter’s sales and marketing spend)

How to calculate

A company’s recurring revenue in Q2 is 700K, and their recurring revenue in Q1 was 500K. Their Sales & Marketing investment in Q1 was 600K. When calculating the Magic Number in Q2, the company will subtract 500K, the previous period recurring revenue, from 700K, to get Q2’s recurring revenue growth of 200K. This quarterly figure is annualized by multiplying by 4 to get 800K. Finally, this number is divided by Q1 Sales & Marketing investment of 600K to get a Magic Number of 1.3. ((700K - 500K) x 4)/600K = 1.3

Magic Number

Start tracking your Magic Number data

Use Klipfolio PowerMetrics, our free analytics tools, to monitor your data.

How does this work?

Follow the steps below in order to get your instant metric

Step 1 - Choose your preferred service
Step 1Choose your preferred service
Step 2 - Create your free Klipfolio PowerMetrics Account
Step 2Create your free Klipfolio PowerMetrics Account
Step 3 - Connect your data and get your metric instantly
Step 3Connect your data and get your metric instantly

What is a good Magic Number benchmark?

The ideal range for the Magic Number is between 1 and 1.5, indicating efficient and sustainable sales and marketing efficiency. Most investors also accept Magic Numbers ranging from 0.5 to 1 because it shows that the company is on the right track. However, a Magic number below 0.5 likely indicates unsustainable growth and sales efficiency, while a Magic Number greater than 1.5 may show that the company is under-investing in Sales & Marketing.

More about this metric

The Magic Number is a metric that is useful in measuring the health of a business. It is the ratio of yearly revenue growth to Marketing & Sales expenditure. Typically, the previous period’s Marketing & Sales dollars are compared to the annualized revenue growth in the current period.

The Magic Number represents sales and marketing efficiency, as well as revenue growth sustainability. Due to this, it can be a strong indicator when sales and marketing are healthy but it needs to be considered along-side other metrics, such as payback periods, churn and gross margin. For example, if the Magic Number is 1 but gross margins are low, it indicates that although there is growth, lack of profits may prevent the business from covering costs.

In general, tracking the Magic Number is a way to either rectify inefficient spending on Sales & Marketing, or consider expansion of successful investments.

If the Magic Number < 1: 

  • Review ROI positive marketing channels and cut low return ones

  • Reduce churn

If the Magic Number > 1:

  • Invest more in ROI positive acquisition channels

  • Consider expanding sales and marketing teams

Recommended resources related to Magic Number

Scale Venture Partner’s Rory O’Driscoll shows Magic Number performance by revenue run rate here (Vital Sign #2). More on how to calculate your Magic Number